Select Investments, L.L.C. v. Rigoberto Lozano Hugo Adame And Lozano, Adame & Garza LLC

Opinion filed November 14, 2013
In The
Eleventh Court of Appeals
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No. 11-11-00278-CV
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SELECT INVESTMENTS, L.L.C., Appellant
V.
RIGOBERTO LOZANO; HUGO ADAME; AND LOZANO,
ADAME & GARZA, LLC, Appellees
On Appeal from the 98th District Court
Travis County, Texas
Trial Court Cause No. D-1-GN-09-001649
MEMORANDUM OPINION
On original submission, we held that the evidence was insufficient to
support the damages awarded by the jury for fraud. Appellees filed a motion for
rehearing in which they assert that this court erred in rendering judgment against
them rather than remanding under the edict of Formosa Plastics Corp. USA v.
Presidio Engineers and Contractors, Inc., 960 S.W.2d 41 (Tex. 1998). We grant
the motion for rehearing, withdraw our opinion and judgment dated August 1,
2013, and substitute the following.
Select Investments, L.L.C. appeals from a judgment, following a jury trial,
in favor of Lozano, Adame & Garza, LLC (LAG) and Hugo Adame, based on
fraud, in the amount of $170,000 and prejudgment interest of $18,676.71, as well
as exemplary damages, based on fraud, awarded to Hugo Adame in the amount of
$125,000 and to LAG in the amount of $285,884. The trial court did not award
Select damages or any offset based upon its counterclaim for breach of contract.
Select urges in four issues on appeal that (1) the evidence is legally and factually
insufficient to show fraud; (2) the evidence is legally and factually insufficient to
show out-of-pocket loss in the amount of $170,000; (3) the trial court erred by not
either awarding Select its contract damages or giving it an offset for those
damages; and (4) the exemplary damages awarded are legally improper, are not
supported by legally or factually sufficient evidence, and are excessive under both
state and federal law. We reverse and remand.
Select contends in Issue One that the evidence is legally and factually
insufficient to show fraud. The evidence is legally insufficient only if (1) the
record discloses a complete absence of evidence of a vital fact, (2) the court is
barred by rules of law or evidence from giving weight to the only evidence offered
to prove a vital fact, (3) the only evidence offered to prove a vital fact is no more
than a mere scintilla, or (4) the evidence conclusively establishes the opposite of
the vital fact. Marathon Corp. v. Pitzner, 106 S.W.3d 724, 727 (Tex. 2003). We
must examine the record for probative evidence that supports the jury’s finding,
while giving credit to all favorable evidence that reasonable jurors could believe
and ignoring all evidence to the contrary unless reasonable jurors could not. City
of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005).
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In determining whether the evidence is factually insufficient, we must
consider and weigh all of the evidence and determine whether the evidence in
support of the finding is so weak as to be clearly wrong and unjust or whether the
finding is so against the great weight and preponderance of the evidence as to be
clearly wrong and manifestly unjust. Fuqua v. Oncor Elec. Delivery Co., 315
S.W.3d 552, 558 (Tex. App.—Eastland 2010, pet. denied).
Fraud is a material misrepresentation, which was false, which was either
known to be false when made or was asserted without knowledge of its truth,
which was intended to be acted upon, which was relied upon, and which caused
injury. Formosa, 960 S.W.2d at 47. A false representation of future performance
is actionable if the promise was made with no intention of performing. Id. at 48.
Slight circumstantial evidence of fraud, when coupled with a promise to perform,
is sufficient to support a finding of fraudulent intent. T.O. Stanley Boot Co. v.
Bank of El Paso, 847 S.W.2d 218, 225 (Tex. 1992).
LAG was developing residential real estate in Austin in 2008. Based upon a
referral from David Hamlin, a real estate agent, LAG sought funding from Select.
Hamlin had previously worked on projects involving Select. Three promissory
notes and deeds of trust were executed in connection with the funding of the
project. Two of the notes and deeds of trust, in the amounts of $330,000 and
$340,000 respectively, were signed by Adame and Rigoberto Lozano on behalf of
LAG and by Adame and Lozano individually. These notes were secured by the
property being developed by LAG. A third note, in the amount of $125,000, was
signed by Adame alone. This third note was secured by property in Brownsville
owned by Adame. The three notes totaled $795,000.
Lozano testified that Appellees were waiting for the Brownsville property to
sell in order to start the Austin project, but Spencer Lindahl, Select’s consultant
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contractor, suggested he would lend them the money represented by the note
secured by the Brownsville property rather than wait for the property to sell.
The jury found, in its answer to Question No. 8 of the court’s charge, that
Select committed fraud against the borrowers in connection with the execution of
the loan documents. A jury could reasonably have believed, based upon the
evidence presented, that Select, through Lindahl, promised that it would lend funds
based upon the promissory note secured by the Brownsville property but that it
never intended to do so.
Select suggests in its brief that no misrepresentation was made by Select.
However, we have set forth testimony regarding a misrepresentation made by
Select that it would loan Appellees the funds represented by the note secured by
the Brownsville property, while it never intended to do so. Lindahl acknowledged
that Select never intended to loan money on the note secured by the Brownsville
property, insisting that the note represented additional collateral for the other two
notes. While Select states that there is no testimony or documentary evidence that
details any misrepresentations, the misrepresentation presented through Lindahl’s
testimony is one which the jury could reasonably have determined as having been
made by Select.
Select argues that Adame never testified as to what representations were
made to him before he signed the Brownsville note. We fail to see the significance
of this point in that, while the individual note was signed by Adame, the deal as a
whole was between LAG, Adame, and Select.
Select contends that the evidence is insufficient to show its intent not to
perform as represented, noting that, when the terms or existence of a contract are in
doubt, it is wrong to infer fraudulent intent from a party’s different view of what
the contract obligates them to do—or even from its denial that an oral agreement
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was ever made. Select relies on the case of Miga v. Jensen, 96 S.W.3d 207, 210
(Tex. 2002), in which the Texas Supreme Court agreed with the appellant in that
case that “a dispute over the terms of an oral agreement cannot, by itself, be any
evidence of fraud, thereby transforming a contractual disagreement into the tort of
fraud.” Given the facts as related, the jury could reasonably have found that Select
did not have a different view of what the contract obligated it to do, inasmuch as
the documents were in the form of a note, a written agreement. We also note that a
denial that a promise was made is a factor showing a lack of any intent to perform
the promise. T.O. Stanley Boot Co., 847 S.W.2d at 225.
Select asserts that neither Adame nor Lozano testified that, but for a
representation supposedly made about the Brownsville note to Adame, LAG would
not have signed the other two notes to move forward with its work on the Austin
property. We believe that the jury could reasonably have determined, from the
testimony we have set forth, that LAG’s work went forward when LAG relied on
Select’s promise to loan it the money that it was later hoping to recover from the
sale of the Brownsville property. Select suggests that Lozano could not have
justifiably relied upon Select to loan the money in a manner other than through
draw requests. Select sets forth no basis for showing that Lozano anticipated that
Select would loan money in some form other than through draw requests. We
overrule Issue One.
Addressing the final element of fraud, Select suggests that the evidence is
insufficient to show that having access to an additional $125,000 would have
permitted LAG to complete the project and make upcoming interest payments to
avoid default on the loans. In essence, Select argues that the evidence is
insufficient to show that Appellees suffered any injury as a result of any
misrepresentation made to them by Select. Appellees’ fraud claim fails in the
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absence of any injury caused by a misrepresentation made by Select. Select
incorporates this argument into its second issue, in which it insists that the
evidence is legally and factually insufficient to support the $170,000 for out-of-
pocket loss found by the jury and awarded in the judgment to Adame and LAG.
The out-of-pocket measure of damages in fraud cases computes the difference
between the value paid and the value received. Formosa Plastics, 960 S.W.2d at
49. Appellees contend that this amount represents the value of the $125,000 that
they lost when the Brownsville property was foreclosed plus the $45,000 that they
spent on construction expenses less $0 for value received.
According to Appellees, the evidence is sufficient to show that the value of
the Brownsville property was $125,000. Lindahl, Select’s representative, testified
that, during negotiations, Select used the figure of $125,000 because that is the
figure given to it by Adame and Lozano. Lozano, one of LAG’s partners, testified,
“We had talked about the sales price [of the Brownsville property], and we all
came up with that amount.” Lozano also testified, “We had a pending contract” to
sell the Brownsville property for about $110,000 at the time that Lindahl suggested
that Select loan them the money against the Brownsville property rather than wait
for that property to sell. No one testified that $125,000 was the reasonable market
value of the property. Adame, the owner of the property, did not testify at trial.
Despite the fact that no one testified that the reasonable market value of the
property was $125,000, Appellees assert that the evidence that we have outlined
was sufficient to support the jury’s finding as to their damages because it
constituted evidence as to Adame’s opinion as the owner of the property
concerning its value. We disagree. Evidence was presented that $125,000 was the
amount used in negotiations between the parties and the amount determined by the
partners to be the listed sales price, but no one, including Adame, testified that
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$125,000 was the reasonable market value of the property. We note also that there
was evidence of a prior outstanding mortgage lien of approximately $12,000 plus
interest against the Brownsville property. We hold that there was an absence of
evidence as to the vital fact of the reasonable market value of the Brownsville
property or that, at best, the evidence in support of the reasonable market value of
the property amounts to no more than a scintilla of evidence. See Porras v. Craig,
675 S.W.2d 503, 504–05 (Tex. 1984) (Owner’s testimony of value of real property
based on something other than reasonable market value does not constitute
evidence of market value.).
In discussing evidence supporting the amount of $45,000 for construction
expenses, Appellees refer us to testimony by Lozano that LAG had spent the initial
$45,000 it had on hand at the beginning of the project for amendment of its plans
to provide for garages in the units as demanded by Select and for the initial pouring
of the foundation for one of the buildings. Appellees also refer us to evidence
from which an inference could be drawn by the jury that Appellees received no
value from the $550,882.45 that was funded by Select. According to Lozano,
Appellees had “paid all of the bills” relating to the draws that had been funded.
Evidence was admitted indicating that the funded draws were spent on the project
and that Select refused to fund the amount requested by Appellees for their
“supervisor fees” for the project.
Because there is some evidence of damages but no probative evidence to
support the entire amount of $170,000 awarded by the jury for out-of-pocket loss
suffered by Appellees, we sustain Issue Two and, in accordance with Formosa,
remand this cause to the trial court for a new trial. See Formosa, 960 S.W.2d at
43–44, 51. Consequently, we do not reach Issue Three or Issue Four because
neither is necessary to the disposition of this appeal. TEX. R. APP. P. 47.1.
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We reverse the judgment of the trial court and remand the cause for a new
trial.
PER CURIAM
Judge Hill would not grant the motion for rehearing and, therefore, dissents
from the opinion of the majority.
November 14, 2013
Panel consists of: Wright, C.J.,
Bailey, J., and Hill, J. 1
Willson, J., not participating.
1
John G. Hill, Former Chief Justice, Court of Appeals, 2nd District of Texas at Fort Worth, sitting
by assignment.
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